Stabell, C.B. and Ø.D. Fjeldstad (1998) Configuring value for competitive advantage On Chains, shops and networks, Strategic Management Journal, 19(5) 413-437 PDF

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St abel l , C. B. and Ø. D. Fj el dst ad ( 1998) “Configur i ng val ue f or compet i t i ve advant age: On Chai ns, shops and net wor ks”, St r at egi cManagementJournal ,19( 5) :413437. Summary: Building on Thompson's (1967) typology of long-linked, intensive, and mediating technologies, this paper explores the idea that the value chain, the value shop, and the value network are three distinct generic value configuration models required to understand and analyze firm-level value creation logic across a broad range of industries and firms. While the long-linked technology delivers value by transforming inputs into products, the intensive technology delivers value by resolving unique customer problems, and the mediating technology delivers value by enabling direct and indirect exchanges between customers. With the identification of alternative value creation technologies, value chain analysis is both sharpened and generalized into what we propose as a value configuration analysis approach to the diagnosis of competitive advantage. With the long-linked technology and the corresponding value chain configuration model as benchmark, the paper reviews the distinctive logic and develops models of the value shop and the value network in termns of primary activity categories, drivers of cost and value, and strategic positioning option Intro: We suggest that the value chain is but one of three generic value configurations. Based on Thompson's (1967) typology of long-linked, intensive and mediating technologies, we explore the idea that the value chain models the activities of a long-linked technology, while the value shop models firms where value is created by mobilizing resources and activities to resolve a particular customer problem, and the value network models firms that create value by facilitating a network relationship between their customers using a mediating technology. Table 1 summarizes the main differences for the three value configurations that the remainder of the paper develops in more detail

THE VALUE CHAIN Value creation logic: We propose that the value chain models a long- linked technology (Thompson, 1967), where value is created by transforming inputs into products. The product is the medium for transferring value between the firm and its customers. Raw materials and intermediate products are typically trans- ported to the production facility that transforms the inputs into products which are shipped to customers Representation of value creation: The value chain analysis framework postulates that competitive advantage is understood by dis- aggregating the value creation process of the firm into discrete activities that contribute to the firm's relative cost position and create a basis for differentiation. The basic assumption underlying the disaggregation is that activities are the building blocks by which a firm creates a product that is valuable to its customers. Different activities have different economics and contribute differently to the valuable characteristics of the product. The heuristic proposed by Porter for disaggregating activities is that the resulting activities (1) have different economics, (2) have a high potential impact on differentiation (value), or (3) represent a significant or growing proportion of cost Primary activities are directly involved in creating and bringing value to the customer. Inbound logistics, Operations, Outbound logistics, Marketing and sales, Service. Support activities enable and improve the performance of the primary activities. Procurement, Technology development, Human resource management, Firm infrastructure. Figure 1 shows the generic value chain diagram. The sequencing and arrow format of the diagram underlines the sequential nature of the primary value activities. The support activities in the upper half potentially apply to each and all of the categories of primary activities. The layered nature of the support activities are apparently meant to tell us that activities are performed in parallel with the primary activities. The margin at the end of the value chain arrow underlines that the chain activities are all cost elements that together produce the value delivered at the end of the chain.

Diagnosis of competitive advantage: Value chain analysis is often limited to and summarized by the identification and discussion of strengths and weaknesses in terms of critical value activities (Hax and Majluf, 1992). A more detailed first-order analysis assigns costs and assets to the value activities. Second-order analysis requires a closer look at the structural drivers of activity cost and value behavior. The drivers are related to the scale and scope of the firm, linkages across activities, and environmental factors. Cost and value drivers are often analyzed separately.

THE VALUE SHOP Value shops-a short form for 'firms that can be modeled as value shops'-rely on an intensive technology (Thompson, 1967) to solve a customer or client problem. Value creation logic: Problems can be defined as differences between an existing state and an aspired or desired state (Simon, 1977). Problem-solving, and thus value creation in value shops, is the change from an existing to a more desired state Representation of value creation: Firms that can be modeled as value shops are typically populated by specialists and experts, often professionals, in the problem domain covered. A profession by definition has a knowledge base, methodology, and language that are unique and that require long training to master (Abbott, 1988). Primary activities: Problem-finding and acquisition, Problem solving, Choice, Execution, Control and evaluation. Support activities: As many support activities, such as human resource management, are coperformed with the primary activites, one might conclude that they should be removed from the value shop diagram. Figure 3 is the generic value shop diagram. The cyclic nature of the activity set is captured by the circular layout of the primary activity categories, where postexecution evaluation can be the problem-finding activity of a new problem- solving cycle. The wheels-within-wheels nature of the activity set can be shown by expanding the execution activity into problemsolving-choice- execution-evaluation activities. The spiralling nature of the activity set is obtained when a decision cycle refers (and passes control to) a different or more specialized shop that picks up a reformulated or reframed client problem.

Diagnosis of competitive advantage: In value shops, the evaluation of firm-level relative value advantage is more difficult than the evaluation of cost. Relative cost of an activity and its relative value contribution are not necessarily related (Porter, 1985: 121). Shop activities accounting for a small percentage of total cost can have a major impact on value. For example, structural factors that affect early activities typically have a significant impact on both the value and cost of later activities due to spiralling commitments as major phases both implement and are constrained by the choices made in earlier phases. The challenge is to establish meaningful indicators of value in a situation where we are assessing the capability of the firm to address future client or customer problems-problems that are potentially unique and may require novel solutions.

THE VALUE NETWORK Value networks-a short form for 'firms that can be modeled as value networks' -rely on a mediating technology (Thompson, 1967) to link clients or customers who are or wish to be inter- dependent. The mediating technology facilitates exchange relationships among customers distrib- uted in space and time. The firm itself is not the network. It provides a networking service Value creation logic: Linking, and thus value creation, in value networks is the organization and facilitation of exchange between customers. Value is derived from service, service capacity, and service opportunity. Mediators typically charge customers separately for the linking opportunity and the actual use of linking services in terms of activities performed and capacity utilized Representation of value creation: The object of mediation distinguishes mediators. There are, however, strong similarities between the activities of various value networks even if the nomenclature used to describe them differs from industry to industry Primary activites: Network promotion and contract management, Service provisioning, Network infrastructure operation Support activities: Among the support activities of the value net- work, two distinct, but related technology development activities are of special interest: network infrastructure development and service development. Figure 6 shows the generic value network diagram. The three primary activity categories over- lap in order to underline the concurrent inter- activity relationship across primary activity categories. The lack of direction of value creation where no arrow identifies the final customer underlines that the work creates value by mediating between customers.

Diagnosis of competitive advantage: As mediating firms offer value to their customers both through the access option and the actual use of services, cost and value must be associated with both.

DISCUSSION The unique characteristics of each value con- figuration are summarized in Table 1 (bildet på side 1) All three configurations have in common a focus on critical value activities, the distinction between primary and support activities, and the analysis of cost and value drivers as a means to translate a value configuration analysis into a competitive strategy. The primary activity categories capture the main differences between the configurations, while the set of support activity categories is not a distinctive attribute of the three alternative value configurations. The long-linked technology transforms objects according to a predefined set and sequence of activities. The intensive technology solves problems by a custom combination of activities. The mediative technology is provided by a standard combination of activities at multiple levels. The article suggest that while the value chain requires a machine bureaucracy organization of primary activities, the value shop is organized according to either the professional bureacuracy or the operational adhocracy. The value network is often organized according to an administrative adhocracy, particularly when the technology of the infrastructure is complex and requires highly specialized development activities. There are distinct scale logics. Scale is a cost driver in the chain. Scale is a cost and value driver in the network. In the shop scale primarily affects value to the extent that it signals success. Simplified, contracts in the chain are linked to the actual exchange of products, are often implicit and are largely governed by general rules for market-based transactions. Contracts in the net- work are explicit and govern both access to the mediation service and the actual use of the ser- vice. Contracts in the shop are mainly implicit, but often policed and enforced by a profession given the information asymmetry in the relationship between the firm and the client. Most firms are not pure instances of a single distinct value configuration. A single firm may employ more than one technology and hence have more than one configuration. The business value systems reflect the activity interrelationships and drivers of the respective underlying value configurations. Value chains form sequentially interrelated value systems of suppliers, producers, and distributors, each adding value to the output from the preceding chain. Value shops are linked and referred in a wheels- outside-wheels relationship to specialized problem-solving and implementation activities. Value networks form coproducing layers of mediators where one network may use a lower-level net- work as a subnetwork. In addition value networks form horizontal interconnected value systems of similar firms that extend the scope of the network by virtual mergers to gain mutual benefits from network externalities. The resulting scope is equivalent to the horizontal union of the vertical intersection of customer contracts. Most business value systems include firms representing all value creation logics...